July 14, 2012

Amazon May Consider Same-Day Shipping

E-commerce giant Amazon.com is reportedly considering a same-day shipping service that could result in the company losing its sales tax-related price advantage over retail competitors.

According to Heather Kelly of CNN.com, the Seattle, Washington-based online marketplace is planning to build new distribution centers in states that enforce the collection of sales tax.

The rumored move, which was first reported by the Financial Times, would allow Amazon customers to receive their merchandise more quickly, but could potentially rob the business of the price advantage they have gained by placing distribution centers in more tax-friendly locales.

"Additional distribution centers in more locations will put the goods in closer proximity to customers, allowing Amazon delivery to go from overnight to later that same afternoon. This could be a boon for last-minute gift shoppers or anyone craving instant-gratification retail therapy," Kelly explained. "The company is taking a gamble on speed and convenience being more important to its consumers than the lack of sales tax."

It could be a dangerous gamble, though, according to the CNN reporter. Kelly said that a Citigroup survey conducted earlier this year found that more than half of Amazon.com shoppers who are not required to pay sales tax would buy less from the website if they were suddenly forced to pay the extra amount. Other experts believe that the quicker delivery for additional cost swap would prove beneficial for the company.

"In terms of speed of delivery, Amazon can't compete now with your local merchant, whether it's Walmart or a mom-and-pop store," Baird Equity Research analyst Colin Sebastian told James Temple of the San Francisco Chronicle on Thursday. "But once they have the facility in your backyard and trucks operating in your area, they become more competitive."

The move could also be a pre-emptive move against possible tax code changes that would result in Amazon forcibly losing their pricing advantage anyway, Temple said.

"Amazon has long leveraged the ruling as a price advantage. A shopper can easily shave a hundred bucks off a big-ticket item by buying it on Amazon as opposed to walking into Best Buy," he explained. "But a string of revenue-starved states have passed laws in recent years closing that loophole, generally by establishing a physical presence through local marketing affiliates."

"For a time, Amazon retaliated by closing down operations or cutting off affiliates in those states," he added. "Eventually, though, it seemed to concede defeat -- and now appears to be turning it to its advantage. So long as the lack of a physical presence no longer ensures Amazon's price advantage, it might as well build lots of facilities close to big cities - thus enabling the faster delivery."